Historically mutual funds have provided 12% to 15% return per annum, which means that if money is invested now in one of these funds at 15% annual return rate, the initial investment kitty would double in size after a few years.
Historically, equity is one asset class that has generated inflation-beating returns over long terms. However, most investors do not have the time or knowledge to create an ideal equity portfolio that matches their risk appetite and generates the desired returns. For this investor class, mutual funds are the best and safest way to get exposure to the equity markets. Market risk is better managed by investing through mutual funds, as they are well diversified and managed by a team of qualified professionals. Historically mutual funds have provided 12% to 15% return per annum, which means that if one’s money is invested now in one of these funds at 15% annual return rate, the initial investment kitty would double in size after a few years.
Indian equity markets are currently at an all-time high. However, the broader markets have underperformed. This kind of market performance is confusing to an ordinary investor. Obviously, it is not advisable to enter the markets when they are their peak. However, it is equally true that it is near impossible to pick a market top or a market bottom. Irrespective of the market conditions, one can go ahead with investment in mutual funds to achieve long-term financial goals.
To create an ideal mutual fund portfolio with a long-term outlook there are several factors that need to be considered. Individual risk tolerance and desired returns should match with the investment objective and style of the chosen mutual fund. Historical performance is another critical aspect that helps one understand if the fund’s returns are consistent with its investment thesis. Good historical performance establishes a solid track record and infuses confidence in one’s investment decision. Past performance is a good proxy to gauge the fund manager’s expertise. However, one should also be mindful about the fund manager’s profile and his tenure at a particular AMC as it can directly be correlated with the mutual fund’s return. Similarly, expense ratio and exit load are other important criterions that should be considered before investing in mutual funds. Typically one should pick funds with low expense ratio and exit load.
An ideal MF portfolio should be well diversified. Investment in mutual funds with varying investment styles thus adds the necessary diversification to a mutual fund portfolio. Large cap funds provide the necessary anchor that a portfolio needs, whereas midcap and small cap funds are needed to maximize returns. Some amount of debt mutual funds provides the necessary safety cushion against market volatility. Keeping all this in mind, we have carefully chosen a list of mutual funds that are well managed and have provided superior results over the longer term. The list includes blue chip funds, small cap midcap funds and some debt funds. Below is a brief description of each of the fund that we have selected:
1. Axis Bluechip Fund: Axis Bluechip’s AUM is relatively smaller when compared to some of the other large cap schemes. Its small size has enabled it to invest in selected high-conviction companies, as compared to its peers and the benchmark index, and a result the fund is among the best performers.
2. ICICI Prudential Bluechip Fund: It is a top-rated equity mutual fund offered by one of India’s leading AMCs — ICICI Prudential Mutual Fund. This leading equity mutual fund is an open-ended scheme that invests in high-quality equity investments available on the National Stock Exchange. The past performance of this fund makes it one of the most popular equity mutual fund investments in India.
3. SBI Bluechip Fund: This is the next best mutual fund for investment. This fund has provided very good return since the last several years. The expense ratio of this fund is very low – 1.97%. Fund return since the launch is on the lower side in comparison to its peers. However, recent performance gives up hope that the fund will do better going forward.
4. Birla Sunlife Frontline Equity: With a track record of over 15 years, Birla Sunlife Frontline Equity has been one of the most consistent performers. The fund invests in some of the fast-growing Indian industries such as Finance, FMCG, Oil & Gas, and IT etc.
5. DSPBR Small and Midcap Fund: It is an open-ended equity growth scheme primarily seeking to generate long-term capital appreciation from a portfolio substantially constituted of equity and equity-related securities which are not a part of top 100 stocks by market capitalization. The fund’s return in the short term gets distorted due to market conditions. However, on a longer-time horizon the fund has given exceptional returns.
6. Reliance Small Cap Fund: In the small-cap category Reliance Small Cap Fund is one of the best funds. This fund has provided a return of 37.60% over a time period of five years. The expense ratio of this fund is low and offers a good investment opportunity.
7. Mirae Asset Emerging Bluechip Fund: This mutual fund has provided 33% annualized returns in 5 years and beaten all its peers. This midcap fund is a unique fund and has performed well in various market cycles.
8. HDFC Midcap Opportunities Fund: HDFC Midcap Opportunity Fund is an excellent fund in terms of quality, returns and expense ratio. This fund has given 29% return to the investor in the last 5 year. The expense ratio of this fund is reasonable and provides an excellent opportunity from a longer-term perspective.
9. Kotak Monthly Income Plan – Kotak Debt Hybrd: Kotak Monthly Income Plan is a debt-oriented conservative plan and is suited best for investors with a conservative mindset. Historically, this fund has given consistently good returns. The majority of investments in this fund are in government securities and bonds. Therefore, this fund provides an excellent cushion to an equity-oriented mutual fund portfolio against market volatility.
10. DSP BlackRock MIP – DSP BlackRock Regular Savings Fund: DSP BlackRock MIP is the best debt-oriented aggressive plan. This fund has given a consistently good performance to the investors on longer time horizons. A majority of the holding of this fund is in government securities, small and midcap stocks. Therefore, the fund is an ideal mix of safety and growth at the same time.
(As on 6 Aug 2018)
Asset Size (in cr.)
Returns (In %)
|Axis Bluechip Fund||Large Cap Fund|
|ICICI Prudential Bluechip Fund||Large Cap Fund|
|SBI Bluechip Fund||Large Cap Fund|
|Birla Sun Life Frontline Equity Fund||Large Cap Fund|
|DSPBR Small and Midcap Fund||Small and Midcap Fund|
|Reliance Smallcap Fund||Small and Midcap Fund|
|Mirae Asset Emerging Bluechip Fund||Small and MidCap Fund|
|HDFC Midcap Opportunities Fund||Small and MidCap Fund|
|Kotak Debt Hybrid||Debt Fund|
|DSP Blackrock Regular Saving Fund||Debt Fund|
The mutual funds that are listed above are ideal choices for a diversified mutual fund portfolio. The list comprises of bluechip funds for stable returns, some midcap names that are growth oriented and some debt funds. These MFs are among the best in their class. Investors, however, are advised to consider this list as a starting point and should analyze their individual situation and their risk reward preference before making any investment decision.
(By Rahul Agarwal, Director, Wealth Discovery/EZ Wealth)
(Disclaimer: The above-mentioned mutual funds have been selected by Wealth Discovery/EZ Wealth. Investors are advised to consult their financial advisor before investing in any of these funds.)